Gold prices have slipped again this year, with the precious metal down more than 40% from its 2011 peak.

We’ve been here before. Gold prices were around $1,140 an ounce in early November, before staging an impressive run back up to about $1,300 by late January, almost a 15% gain.

Difficult as it is in this age of Internet trolls, I try to be agnostic about gold and think purely about its investment potential in the here and now. I couldn’t care less about conspiracy theories — what I want to know is whether I can make money on this trade, given that gold is so volatile.

So what’s in the cards for gold now? Are current prices a bargain as they were last fall, or will the recent declines continue?

I believe it’s the latter. But that doesn’t mean a savvy trader can’t make a profit with a targeted short-term play on gold or gold miners.

Gold’s January head fake

Gold’s jump at the beginning of the year was largely a head fake. Investors were rattled by weak retail sales and consumer spending to start the year, and conflicts in Russia and in Iraq helped fan the flames of uncertainty for many gold bugs.

But subsequent economic reports have proven that fears over consumer trends were overblown, with a series of encouraging jobs reports and a nice retail sales bounce in May. At the same time, geopolitics was moved to the back burner as investors lost interest in troubles abroad.

Throw in the fact that the U.S. dollar staged an impressive run, and the scales were tipped decidedly against gold in spring. Quantitative easing in Japan and obvious problems for the euro amid a Greek debt crisis favored the greenback, and a stronger dollar naturally means weaker prices for commodities such as gold that are priced in U.S. dollars.

It’s also important to note that the broad trend for gold has been downward since 2011 because of some rather massive market dynamics, namely the end of a so-called “supercycle” for commodities. From the 1990s through the financial crisis, prices of commodities from gold to copper to oil were surging on strong emerging-market demand and supply bottlenecks, and then the bottom fell out.

It’s hard to imagine these challenges abating anytime soon. The U.S. dollar remains rock-solid vs. the yen, euro and other currencies, and with the Fed talking about raising rates before the end of the year, that trend is assuredly going to continue. At the same time, emerging-market demand has been soft. Consider gold in India is actually discounted significantly vs. global pricing as jewelry demand remains weak even in this nation where gold remains an important cultural touchstone.

Long-story short: January’s high was a head fake, and the long-term trend remains decidedly against gold.

Trade gold or miners, but don’t hold them

Still, much of this narrative working against gold is old news. So even though I think the deck is stacked against gold, it’s worth at least entertaining the notion that the precious metal has been beaten down too far and that shrewd swing traders may be able to swoop in and make a profit.

That’s actually the view of Bank of America Merrill Lynch, which recently called gold “undervalued” by a small measure.

Also, many central banks continue to be buyers of gold. The World Gold Council reported that in 2014, government demand for the precious metal rose at the second-highest pace in 50 years, with a 17% increase in demand. Russia was at the top of that list, and should remain there as it looks to diversify its foreign reserves and help its ailing ruble.

And, of course, it’s important to remember that demand for gold, as with any commodity, can often be propped up by falling prices. Consider that after China’s appetite for gold plunged 25% in 2014, it snapped back nicely in the first quarter of this year in large part because of how cheap the precious metal had become in the eyes of buyers.

Speaking of China, the huge losses incurred by recent market declines in the nation could rekindle interest in gold as an investment alternative.

All this may add up to short-term potential for gold, even if long-term price targets don’t hold a lot of upside.

Another interesting play for traders could be mining stocks. Mining companies have fallen much more than gold from their high-water marks earlier this year. Take AngloGold Ashanti Ltd.
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which is down about 40% from February while gold is only off by a little more than 10% in the same period. AngloGold stock now trades for about 0.65 time next year’s sales and at a forward price-to-earnings of about 8.

Those are risky plays, mind you, and investors should expect volatility. I certainly don’t think a direct investment in gold bullion or gold miners will give you reliable returns over the next few years, and there’s a decent chance that the broader pressure against gold and gold miners will continue.

But if you want to grab the tiger by the tail, I can understand the logic behind a swing trade in gold or gold miners.

Just know what you’re getting into, because the long-term view for gold remains bleak.

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